What is DePIN (Decentralised Physical Infrastructure Networks) in Crypto?
DePIN stands for Decentralised Physical Infrastructure Networks. It bridges physical infrastructure with blockchain technology, decentralizing these infrastructure resources.
DePIN utilizes incentivisation systems powered by cryptocurrency to establish a reward-based framework for providers of crowd-sourced physical infrastructural services, thereby promoting decentralized alternatives to traditional facilities.
According to CoinGecko, the DePIN market cap is over $26 billion at the time of writing surpassing DEX and Oracle tokens.
Let's dive into DePIN: what it is and how it works.
DePINs are peer-to-peer (P2P) crowd-sourced networks where individuals contribute physical infrastructure resources such as data storage, wireless connectivity, sensors, or even energy grids. In return, providers of these services earn rewards according to the protocol's incentive mechanism, which is usually in the native token of the particular protocol.
In traditional settings, the concept of harnessing the power of community to establish a network of resources for millions of users already exists. As an example, consider Silencio Network, a DePIN for collecting local noise data. Users install an app on their phones, which work as the contributed infrastructure by measuring the noise pollution in the area, and are rewarded with blockchain tokens in return for this data.
The model can also apply to costlier machines as well. For example, ELOOP Network leveraged tokenization to set up a DePIN of car-sharing Teslas in Vienna, and is now working to unlock tokenization for everyone.
All in all, DePIN decentralizes some services that are otherwise centralized in traditional settings, for example cloud storage services are owned by big corporations that build up and provide storage infrastructure to users.
Besides the fact that such services are centralized, new entrepreneurs also face high entry barriers(the cost of single-handedly building/running enough infrastructure, etc).
Decentralised Physical Infrastructure Networks (DePINs) eliminate this issue with the concept that, with enough participants, the entire network becomes self-sustainable.
DePINs thrive within the web of connectivity, utilizing the core principles of distributed networks to address the challenges of physical infrastructure management. As more people participate, the value of the network often increases. Incentivised individuals share their resources, leading to the expansion and increased value of the overall infrastructure. This, in turn, encourages further participation and fuels the network effect.
DePIN networks are connecting blockchain and the real world in ways we have never seen before. Here are the essential parts of how DePIN works:
Physical infrastructure: These are physical facilities that facilitate the transmission of data, resources, or information within the network, and they are managed by private providers.
Sometimes, providers may already own this physical infrastructure before contributing to the DePIN protocol. The most commonly used components are hardware devices such as routers, sensors, and networking equipment.
Blockchain Architecture: DePIN projects rely on blockchain architecture to execute smart contracts, charge fees and provide rewards to participants. DePINs can leverage their own chains or build on a layer-1 of choice; peaq has been establishing itself as the home of DePIN due to its DePIN-friendly ecosystem and pre-made Modular DePIN Functions.
Off-Chain Network: DePIN protocol networks are associated with data transactions that happen outside of the blockchain network, participants buy/provide required resources like computing power, data storage and connectivity from external service providers
Token Rewards: Participants who contribute to the protocol receive token rewards as incentives.
DePINs are classified into two major categories they are:
Physical Resource Networks(PRNs)
These are location-based physical infrastructures, users get rewarded for providing location-based hardware resources related to connectivity, energy or geospatial data
Digital Resource Networks (DRNs)
These resources are not set to any location or related to locational data, DRNs include digital resources such as storage facilities, bandwidth computing power, etc.
The DePIN flywheel is a self-sustaining cycle that grows as more participants provide resources to the network.
Some participants may have these resources lying dormant before joining the network.
As more participants provide resources the network becomes stronger and bigger.
Because everything is crowd-sourced and decentralized protocols can offer these services cheaper than traditional corporations.
This attracts users and the protocol makes money from fees while participants who provide their resources receive token rewards as incentives.
If the demand increases so will the value of the native token which means contributors will also receive higher rewards which will attract more contributors.
As more resources are contributed, the DePIN network expands its capacity. This allows the protocol to handle more users and offer a wider range of services.
This growth and increase in token value will attract investors who will provide funding and additional support that will further accelerate the growth of the protocol.
Here are some of the benefits of DePINs:
Accessibility: DePINs are Permissionless
DePINs are typically built on public blockchains, rendering them permissionless, allowing anyone to contribute their resources to a DePIN protocol provided they have the necessary infrastructure. Additionally, anyone can access the services offered by a DePIN protocol.
DePINs Are Borderless: Rapid Scalability
Since DePIN protocols are decentralised communities and not government-owned, the network can rapidly expand into new jurisdictions without many bureaucratic hurdles.
DePINs Are Crowdsourced: Relatively Affordable
DePINs are constructed through crowdsourced efforts, eliminating bureaucratic hurdles and distributing costs across participants. This results in faster and more affordable infrastructure development.
Factors contributing to the pricing model for users of these protocols include the costs incurred by private providers to operate their facilities and other network-related factors.
Additional charges from the platform could be lower, as the platform itself incurs no cost to provide these facilities. All of these factors contribute to fairer pricing when compared to centralized services.
Self-Sustainability
Through incentivization, crowdsourced, and efficient resource allocation, DePIN networks can generate enough income to maintain and expand their infrastructure without requiring constant external investment. This creates a more resilient and independent infrastructure system, ensuring sustainability.
As the narrative continues to garner support and grow it is also important for both DePIN protocols to ensure safety and security.
For Users:
“In essence, DePIN is all about bringing Web3 into the real world. It is the true adoption which puts blockchain at the core of some of the most everyday things out there, like renting a car or grabbing a coffee on your way to work. The sector’s potential is nothing short of revolutionary, but with the real-world focus also comes the prospect of causing real-world harm. This is why security is crucial for DePINs, which makes audits by security companies like Hashlock very much worth considering for all DePIN builders.” — Max Thake, co-founder of peaq, the layer-1 blockchain for DePIN and Machine RWAs.
DePIN is another innovative way of bringing historically traditional services to the blockchain and into Web3. The market cap of centralized companies providing these same services, such as Amazon and Microsoft, is in the trillions of dollars. In comparison, the crypto DePIN infrastructure has a long way to go.
The DePIN model is quite impressive; if successfully implemented, a DePIN protocol can be self-sustainable. However, it is important to bear in mind that while this shows potential, there could be certain disadvantages, some of which are yet to be known due to the current stage of development.
[Author’s Note: This article does not represent financial advice, everything written here is strictly for educational and informational purposes. Please do your own research before investing.]
Author: Godwin Okhaifo
